<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)
    X           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
--------        OF THE SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended December 31, 1999

                                      or

                TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
--------        OF THE SECURITIES EXCHANGE ACT OF 1934

             For the transition period from __________ to__________

                         Commission File Number 0-12950

                          ALLIANCE PHARMACEUTICAL CORP.
             (Exact name of Registrant as specified in its charter)

New York                                   14-1644018
---------------------------------          -----------------------------------
(State or other jurisdiction               (I.R.S. Employer
of incorporation or organization)          Identification Number)

3040 Science Park Road
San Diego, California                      92121
---------------------------------          -----------------------------------
(Address of principal                      Zip Code
executive offices)

Registrant's telephone number,
including area code:                       858/410-5200
                                           -----------------------------------

Indicate by a check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days.

         Yes         X                       No
               -------------                        -------------
As of February 10, 2000, Registrant had 46,980,029 shares of its Common Stock,
$.01 par value, outstanding.



<PAGE>


ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES


<TABLE>
<CAPTION>

INDEX                                                                                                 Page No.
-----                                                                                                 --------

<S>                                                                                                   <C>
PART I - FINANCIAL INFORMATION



Item 1. Financial Statements



     Condensed Consolidated Balance Sheets                                                                3



     Condensed Consolidated Statements of Operations                                                      4



     Condensed Consolidated Statements of Cash Flows                                                      5



     Notes to Condensed Consolidated Financial Statements                                                 6



Item 2. Management's Discussion and Analysis of

 Financial Condition and Results of Operations                                                            8



PART II - OTHER INFORMATION

Item 1. Legal Proceedings                                                                                13

Item 2. Changes in Securities and Use of Proceeds                                                        13

Item 4. Submission of Matters to a Vote of Security Holders                                              14

Item 6. Exhibits and Reports on Form 8-K                                                                 15

</TABLE>


                                       2
<PAGE>


PART I FINANCIAL INFORMATION:
ITEM 1.  FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

     ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
     CONDENSED CONSOLIDATED BALANCE SHEETS
---------------------------------------------------------------------------------------------------------------------------------

                                                                                    DECEMBER 31,                 JUNE 30,
                                                                                        1999                       1999
                                                                                ----------------------     ----------------------
     ASSETS                                                                          (UNAUDITED)                  (NOTE)
<S>                                                                             <C>                        <C>
     CURRENT
     ASSETS:
         Cash and cash equivalents                                              $          10,442,000      $          19,081,000
         Short-term investments                                                             7,789,000                         --
         Research revenue receivable                                                        1,050,000                  4,875,000
         Other current assets                                                                 217,000                    413,000
                                                                                ----------------------     ----------------------
                   Total current assets                                                    19,498,000                 24,369,000

     PROPERTY, PLANT AND EQUIPMENT - NET                                                   22,197,000                 24,621,000
     PURCHASED TECHNOLOGY - NET                                                            10,601,000                 11,361,000
     RESTRICTED CASH                                                                        5,138,000                  5,000,000
     OTHER ASSETS - NET                                                                       675,000                    633,000
                                                                                ----------------------     ----------------------
                                                                                $          58,109,000      $          65,984,000
                                                                                ======================     ======================

     LIABILITIES AND STOCKHOLDERS' EQUITY

     CURRENT LIABILITIES:
         Accounts payable                                                       $           4,599,000      $           4,910,000
         Accrued expenses                                                                   4,564,000                  4,280,000
         Current portion of long-term debt                                                  4,003,000                  4,170,000
                                                                                ----------------------     ----------------------
                   Total current liabilities                                               13,166,000                 13,360,000

     LONG-TERM DEBT                                                                         8,119,000                 10,499,000

     STOCKHOLDERS' EQUITY:
         Preferred stock - $.01 par value; 5,000,000 shares authorized; 500,000
              shares of Series D issued and outstanding at
              December 31, 1999 and June 30, 1999                                               5,000                      5,000
         Common stock - $.01 par value; 75,000,000 shares authorized; 44,738,274
              and 43,510,049 shares issued and outstanding
              at December 31, 1999 and June 30, 1999, respectively                            447,000                    435,000
         Additional paid-in capital                                                       376,905,000                368,409,000
         Accumulated deficit                                                             (340,533,000)              (326,724,000)
                                                                                ----------------------     ----------------------
                   Total stockholders' equity                                              36,824,000                 42,125,000
                                                                                ----------------------     ----------------------
                                                                                $          58,109,000      $          65,984,000
                                                                                ======================     ======================

</TABLE>

     Note:    The balance sheet at June 30, 1999 has been derived from the
              audited financial statements at that date but does not include all
              of the information and footnotes required by generally accepted
              accounting principles for complete financial statements.

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                                       3
<PAGE>


<TABLE>
<CAPTION>

   ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
------------------------------------------------------------------------------------------------------------------------------

                                                       THREE MONTHS ENDED                          SIX MONTHS ENDED
                                                           DECEMBER 31,                               DECEMBER 31,
                                                     1999               1998                  1999                 1998
                                             ------------------  ------------------    ------------------   ------------------
                                                          (UNAUDITED)                                (UNAUDITED)
<S>                                          <C>                 <C>                   <C>                  <C>
   REVENUES:
      License and research revenue           $      14,204,000   $       1,048,000     $      15,772,000    $       6,148,000

   OPERATING EXPENSES:
      Research and development                      14,651,000          16,418,000            25,064,000           29,964,000
      General and administrative                     2,634,000           1,990,000             4,346,000            4,175,000
                                             ------------------  ------------------    ------------------   ------------------
                                                    17,285,000          18,408,000            29,410,000           34,139,000
                                             ------------------  ------------------    ------------------   ------------------
   LOSS FROM OPERATIONS                             (3,081,000)        (17,360,000)          (13,638,000)         (27,991,000)

   INVESTMENT INCOME                                   312,000             532,000               522,000            1,167,000
   INTEREST EXPENSE                                   (320,000)           (245,000)             (693,000)            (438,000)
                                           --------------------    ----------------       ---------------   ------------------
   NET LOSS                                         (3,089,000)        (17,073,000)           (13,809,000)         (27,262,000)

   IMPUTED DIVIDEND ON
      SERIES E-1 PREFERRED STOCK                            --                  --                     --             (483,000)
                                             ------------------  ------------------    ------------------   ------------------
   NET LOSS APPLICABLE TO COMMON SHARES      $      (3,089,000)  $     (17,073,000)    $      (13,809,000)  $      (27,745,000)
                                             ==================  ==================    ==================   ==================

   NET LOSS PER COMMON SHARE:
      BASIC AND DILUTED                      $           (0.07)  $           (0.53)    $            (0.31)  $            (0.87)
                                             ==================  ==================    ==================   ==================

   WEIGHTED AVERAGE SHARES OUTSTANDING:
      BASIC AND DILUTED                             44,225,000          32,042,000             43,868,000           32,032,000
                                             ==================  ==================    ==================   ==================

</TABLE>

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



                                       4
<PAGE>


<TABLE>
<CAPTION>

    ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------------------------------------------------

                                                                                 SIX MONTHS ENDED
                                                                                    DECEMBER 31,
                                                                           1999                      1998
                                                                   -------------------       -------------------
                                                                                    (UNAUDITED)
<S>                                                                <C>                       <C>
    OPERATING ACTIVITIES:
       Net loss                                                    $      (13,809,000)       $      (27,262,000)
       Adjustments to reconcile net loss to net cash used in operations:
          Depreciation and amortization                                     3,434,000                 2,795,000
          Expense associated with warrant issuance                            441,000                        --
          Receipt of equity securities in exchange for technology          (4,800,000)                       --
          Issuance of common stock in exchange for technology               5,000,000                        --
          Changes in operating assets and liabilities:
            Research revenue receivable                                     3,825,000                 3,972,000
            Restricted cash and other assets                                   16,000                   (79,000)
            Accounts payable and accrued expenses and other                   (27,000)                  516,000
                                                                   -------------------       -------------------
    Net cash used in operating activities                                  (5,920,000)              (20,058,000)
                                                                   -------------------       -------------------

    INVESTING ACTIVITIES:
       Purchases of short-term investments                                         --               (23,711,000)
       Sales and maturities of short-term investments                              --                38,663,000
       Property, plant and equipment                                         (123,000)               (3,207,000)
                                                                   -------------------       -------------------
    Net cash provided by (used in) investing activities                      (123,000)               11,745,000
                                                                   -------------------       -------------------

    FINANCING ACTIVITIES:
       Issuance of common stock                                               78,000                         --
       Issuance of convertible preferred stock                                    --                  5,583,000
       Proceeds from long-term debt                                               --                  5,050,000
       Principal payments on long-term debt                               (2,674,000)                  (357,000)
                                                                   -------------------       -------------------
    Net cash provided by (used in) financing activities                   (2,596,000)                10,276,000
                                                                   -------------------       -------------------

    INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                      (8,639,000)                 1,963,000
    CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                      19,081,000                 11,809,000
                                                                   -------------------       -------------------
    CASH AND CASH EQUIVALENTS AT END OF PERIOD                     $      10,442,000         $       13,772,000
                                                                   ===================       ===================

    SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
      AND FINANCING ACTIVITIES:
       Deferred interest expense on long-term debt                 $         127,000         $               --
       Imputed dividend on preferred stock                                        --                    483,000

</TABLE>


SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                                       5
<PAGE>


ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

         Alliance Pharmaceutical Corp. and its subsidiaries (collectively, the
"Company" or "Alliance") are engaged in identifying, designing, and developing
novel medical products.

PRINCIPLES OF CONSOLIDATION

         The consolidated financial statements include the accounts of Alliance
Pharmaceutical Corp., its wholly owned subsidiary Astral, Inc., its wholly owned
subsidiary MDV Technologies, Inc. ("MDV") from the acquisition date of November
1996, its wholly owned subsidiary Alliance Pharmaceutical GmbH from its
inception in December 1998, and its majority-owned subsidiary Talco
Pharmaceutical, Inc. All significant intercompany accounts and transactions have
been eliminated. Certain amounts in fiscal 1999 have been reclassified to
conform to the current year's presentation.

INTERIM CONDENSED FINANCIAL STATEMENTS

         The condensed consolidated balance sheet as of December 31, 1999, the
condensed consolidated statements of operations for the three and six months
ended December 31, 1999 and 1998, and the condensed consolidated statements of
cash flows for the six months ended December 31, 1999 and 1998 are unaudited. In
the opinion of management, such unaudited financial statements include all
adjustments, consisting only of normal recurring accruals, necessary for a fair
presentation of the results for the periods presented. Interim results are not
necessarily indicative of the results to be expected for the full year. The
financial statements should be read in conjunction with the Company's
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended June 30, 1999.

PURCHASED TECHNOLOGY

         The purchased technology was primarily acquired as a result of the
merger of Fluoromed Pharmaceutical, Inc. into a subsidiary of the Company in
fiscal 1989. The technology acquired is the Company's core perfluorochemical
("PFC") technology and was valued based on an analysis of the present value of
future earnings anticipated from this technology at that time. The Company
identified alternative future uses for the PFC technology, including the
OXYGENT(TM) (temporary blood substitute) and LIQUIVENT(R) (intrapulmonary oxygen
carrier) products.

         The PFC technology is the basis for the Company's main drug development
programs and is being amortized over a 20-year life. The PFC technology has a
book value of $10.6 million and $11.2 million, net of accumulated amortization
of $12.6 million and $12 million at December 31 and June 30, 1999, respectively.


                                       6
<PAGE>


         The carrying value of purchased technology is reviewed periodically
based on the projected cash flows to be received from license fees, milestone
payments, royalties and other product revenues. If such cash flows are less than
the carrying value of the purchased technology, the difference will be charged
to expense.

COMPREHENSIVE INCOME AND LOSS

         Effective July 1, 1998, the Company adopted the Financial Accounting
Standards Board's Statement No. 130, Comprehensive Income ("SFAS No. 130"). SFAS
No. 130 establishes new rules for the reporting and display of comprehensive
income and its components; however, the adoption of SFAS No. 130 had no impact
on the Company's net loss or stockholders' equity. SFAS No. 130 requires
unrealized gains and losses on the Company's available-for-sale securities to be
included in comprehensive income. During the three months ended December 31,
1999 and 1998, the total comprehensive loss, which includes the unrealized gain
or loss on available-for-sale securities, was $100,000 and $17,079,000,
respectively. During the six months ended December 31, 1999 and 1998, the total
comprehensive loss, which includes the unrealized gain or loss on
available-for-sale securities, was $10,820,000 and $27,285,000, respectively.

NET INCOME (LOSS) PER SHARE

         The Company computes net loss per common share in accordance with
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128").
SFAS No. 128 requires the presentation of basic and diluted earnings per share
amounts. Basic earnings per share is calculated based upon the weighted average
number of common shares outstanding during the period while diluted earnings per
share also gives effect to all potential dilutive common shares outstanding
during the period such as common shares underlying options, warrants, and
convertible securities, and contingently issuable shares. All potential dilutive
common shares have been excluded from the calculation of diluted earnings per
share as their inclusion would be anti-dilutive.

2.  SALE OF TECHNOLOGY

         In November 1999, the Company completed the sale of certain aspects of
its PULMOSPHERES(R) technology to Inhale Therapeutic Systems, Inc. ("Inhale")
for $15 million in cash and $5 million in common stock of Inhale, plus
additional future milestone and royalty payments. In consideration for retaining
certain rights to use the technology, Alliance issued $5 million in Alliance
common stock to Inhale.

3.  SUBSEQUENT EVENT

         On February 11, 2000, the Company signed an agreement with certain
investors to purchase $15 million in principal amount of four-year 5%
subordinated convertible debentures. When issued, the debentures will be
convertible at any time at each investor's option into shares of Alliance
common stock at $9.65 per share, subject to certain antidilution provisions.
The Company will have certain rights to cause the debentures to convert into
common stock. The investors will have the option at any time to purchase, and
the Company will have certain rights to require

                                       7
<PAGE>


the investors to purchase, an additional $15 million of four-year 5%
subordinated convertible debentures, convertible into Alliance common stock
at $12.06 per share.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (References to years are to the Company's fiscal years ended June
30.)

         Alliance has devoted substantial resources to research and development
related to its medical products. The Company has been unprofitable since
inception and expects to incur operating losses for at least the next several
years due to substantial spending on research and development, preclinical
testing, clinical trials, regulatory activities, and commercial manufacturing
start-up. The Company has collaborative research and development agreements for
IMAGENT(R) and RODA(TM). Under the arrangement for IMAGENT, Schering AG, Germany
("Schering") has agreed to reimburse the Company for some of its development
expenses. Schering will also make milestone payments to the Company upon the
achievement of certain product development events, followed by royalties on
sales at commercialization. With respect to RODA, the Company has agreed to
reimburse VIA Medical Corporation ("VIA") for substantially all of its
development expenses and to share revenues from the sale of products. There can
be no assurance that the Company will be able to achieve profitability at all or
on a sustained basis.

LIQUIDITY AND CAPITAL RESOURCES

         Through December 1999, the Company financed its activities primarily
from public and private sales of equity and funding from collaborations with
corporate partners. To date, the Company's revenue from the sale of products has
not been significant.

         In January 1997, the Company entered into a loan and security agreement
with a bank under which the Company received $3.5 million. In June 1998, the
Company restructured the loan to provide for up to $15 million. Amounts borrowed
are secured by a $5 million restricted certificate of deposit, by certain fixed
assets and patents, and are to be repaid over four years. If certain financial
covenants are not satisfied, the outstanding balance may become due and payable.
On December 31, 1999, the balance outstanding on this loan was approximately
$10.9 million. In May 1999, the Company issued $1.8 million in principal
amount of subordinated convertible notes. On February 8, 2000, the Company
caused the notes to be converted into 900,000 shares of common stock of the
Company.

         In November 1999, the Company completed the sale of certain aspects of
its PULMOSPHERES technology to Inhale for $15 million in cash and $5 million in
common stock (180,099 shares) of Inhale, plus the right to receive additional
future milestone and royalty payments. In consideration for retaining certain
rights to use the technology, Alliance issued $5 million in Alliance common
stock to Inhale. As of December 31, 1999, the value of the common stock received
from Inhale was recorded as $7 million after an adjustment to reflect the market
value, however; the shares have not yet been registered for resale with the
Securities and Exchange Commission.

         In September 1997, the Company entered into a license agreement (the
"Schering License Agreement") with Schering, which provides Schering with
worldwide exclusive marketing and manufacturing rights to Alliance's drug
compounds, drug compositions, and medical devices and systems related to
perfluorocarbon ultrasound imaging products, including IMAGENT. The product


                                       8
<PAGE>


is being developed jointly by Alliance and Schering. Under the Schering License
Agreement, Schering paid to Alliance in 1998 an initial license fee of $4
million, and agreed to pay further milestone payments and royalties on product
sales. Schering is also providing funding to Alliance for some of its
development expenses related to IMAGENT. In conjunction with the Schering
License Agreement, Schering Berlin Venture Corp., an affiliate of Schering,
purchased 500,000 shares of the Company's convertible Series D Preferred Stock
for $10 million, which was converted on February 2, 2000 into 1,000,000
shares of common stock of the Company.

         In June 1997, the Company sold $2.5 million in clinical trial supplies
to Hoescht Marion Roussel, Inc. ("HMRI") and recorded it as deferred revenue. In
September 1999, HMRI agreed to sell and Alliance agreed to purchase the clinical
trial supplies for up to $3 million over time and under certain circumstances.

         The Company had net working capital of $6.3 million at December 31,
1999, compared to $11 million at June 30, 1999. The Company's cash, cash
equivalents, and short-term investments decreased to $18.2 million at
December 31, 1999 from $19.1 million at June 30, 1999. The decrease resulted
primarily from net cash used in operations of $5.9 million and principal
payments on long-term debt of $2.7 million, partially offset by the equity
securities received from the sale of technology to Inhale. The Company's
operations to date have consumed substantial amounts of cash and are expected
to continue to do so for the foreseeable future.

         The Company continually reviews its product development activities in
an effort to allocate its resources to those product candidates that the Company
believes have the greatest commercial potential. Factors considered by the
Company in determining the products to pursue include projected markets and
need, potential for regulatory approval and reimbursement under the existing
healthcare system, status of its proprietary rights, technical feasibility,
expected and known product attributes, and estimated costs to bring the product
to market. Based on these and other factors, the Company may from time to time
reallocate its resources among its product development activities. Additions to
products under development or changes in products being pursued can
substantially and rapidly change the Company's funding requirements.

         The Company expects to incur substantial additional expenditures
associated with product development, particularly for LIQUIVENT and OXYGENT as
they continue through pivotal clinical trials. The Company is seeking additional
collaborative research and development relationships with suitable corporate
partners for its non-licensed products. There can be no assurance that such
relationships, if any, will successfully reduce the Company's funding
requirements. Additional equity or debt financing may be required, and there can
be no assurance that such financing will be available on reasonable terms, if at
all. If adequate funds are not available, the Company may be required to delay,
scale back, or eliminate one or more of its product development programs, or
obtain funds through arrangements with collaborative partners or others that may
require the Company to relinquish rights to certain of its technologies, product
candidates, or products that the Company would not otherwise relinquish.

         Alliance anticipates that its current capital resources and
estimated net proceeds of $14.5 million from the convertible debenture
offering will be adequate to satisfy its capital requirements through at
least fiscal 2000. The Company's future capital requirements will depend on
many factors, including, but not

                                       9
<PAGE>


limited to, continued scientific progress in its research and development
programs, progress with preclinical testing and clinical trials, the time and
cost involved in obtaining regulatory approvals, patent costs, competing
technological and market developments, changes in existing collaborative
relationships, the ability of the Company to establish additional collaborative
relationships, and the cost of manufacturing scale-up.

         While the Company believes that it can produce materials for clinical
trials and the initial market launch for OXYGENT and IMAGENT at its existing San
Diego facilities and for LIQUIVENT at its Otisville, New York facility, it may
need to expand its commercial manufacturing capabilities for its products in the
future. Any expansion for any of its products may occur in stages, each of which
would require regulatory approval, and product demand could at times exceed
supply capacity. The Company has not selected a site for such expanded
facilities and cannot predict the amount it will expend for the construction of
such facilities. There can be no assurance as to when or whether the U.S. Food
and Drug Administration ("FDA") will determine that such facilities comply with
Good Manufacturing Practices. The projected location and construction of such
facilities will depend on regulatory approvals, product development, and capital
resources, among other factors. The Company has not obtained any regulatory
approvals for its production facilities for these products, nor can there be any
assurance that it will be able to do so. The Schering License Agreement requires
the Company to manufacture products at its San Diego facility for a period of
time after market launch at a negotiated price. Schering will be responsible for
establishing production capacity beyond the maximum capacity of the San Diego
facility.

YEAR 2000

         Many computer systems and software products created prior to January 1,
2000 were coded to accept only two-digit entries in the date code field.
Beginning in the year 2000, these date code fields need to accept four-digit
entries to distinguish the 21st century dates from 20th century dates. As a
result, computer systems and/or software used by many companies needed to be
upgraded to comply with such "Year 2000" requirements. Management has a
continuing Year 2000 program. Although the Company had no material problems in
the rollover from December 31, 1999 to January 1, 2000, the program will
continue to monitor internal systems for future dates in 2000 which could cause
system failures. As of December 31, 1999, the Company determined that all
critical and most non-critical internal systems, software and embedded chips
were compliant or replaced those that were not compliant. The Company received
compliance confirmations from over 75% of its critical third-party suppliers,
contractors and vendors (collectively, "contractors") with respect to their
computers, software and systems, and it believes that none of its contractors
had material problems in the rollover from December 31, 1999 to January 1, 2000.
However, no assurances can be given that the Company's internal systems or
contractors' systems will not have operational problems in the future or be
compliant. The Company's costs for its Year 2000 program to date have not been
material and are expected to total less than $400,000. The Company believes such
costs will not have a material effect on the Company's consolidated financial
position or results of operations. There can be no assurance, however, that the
Company's computer systems and applications of other companies on which the
Company's operations rely, will not fail in the future and will not have a
material adverse effect on the Company systems. Moreover, a failure of (i) the
Company's scientific, manufacturing and other equipment to operate at all or
operate accurately, (ii) clinical trial site medical equipment to


                                       10
<PAGE>


perform properly, (iii) necessary materials or supplies to be available to the
Company when needed, or (iv) other equipment, software or systems to perform
properly, as a result of Year 2000 problems, could have a material adverse
effect on the Company's business or financial condition.

         Except for historical information, the statements made herein and
elsewhere are forward-looking. The Company wishes to caution readers that these
statements are only predictions and that the Company's business is subject to
significant risks. The factors discussed herein and other important factors, in
some cases have affected, and in the future could affect, the Company's actual
results and could cause the Company's actual consolidated results for 2000, and
beyond, to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company. These risks include, but are
not limited to, the inability to obtain adequate financing for the Company's
development efforts; the inability to enter into collaborative relationships to
further develop and commercialize the Company's products; changes in any such
relationships, or the inability of any collaborative partner to adequately
commercialize any of the Company's products; the uncertainties associated with
the lengthy regulatory approval process; the uncertainties associated with
obtaining and enforcing patents important to the Company's business; possible
competition from other products; and Year 2000 issues. Furthermore, even if the
Company's products appear promising at an early stage of development, they may
not reach the market for a number of important reasons. Such reasons include,
but are not limited to, the possibilities that the potential products will be
found ineffective during clinical trials; failure to receive necessary
regulatory approvals; difficulties in manufacturing on a large scale; failure to
obtain market acceptance; and the inability to commercialize because of
proprietary rights of third parties. The research, development, and market
introduction of new products will require the application of considerable
technical and financial resources, while revenues generated from such products,
assuming they are developed successfully, may not be realized for several years.
Other material and unpredictable factors which could affect operating results
include, without limitation, the uncertainty of the timing of product approvals
and introductions and of sales growth; the ability to obtain necessary raw
materials at cost-effective prices or at all; the effect of possible technology
and/or other business acquisitions or transactions; and the increasing emphasis
on controlling healthcare costs and potential legislation or regulation of
healthcare pricing.

RESULTS OF OPERATIONS

         SIX MONTHS ENDED DECEMBER 31, 1999 AS COMPARED WITH SIX MONTHS ENDED
DECEMBER 31, 1998

         The Company's license and research revenue increased by $9.6 million to
approximately $15.8 million for the six months ended December 31, 1999, compared
to $6.1 million for the six months ended December 31, 1998. The increase is
primarily a result of the proceeds from the sale of technology to Inhale. The
Company expects research revenue for fiscal 2000 to increase when compared to
fiscal 1999, due to the revenue from the Inhale transaction.

         Research and development expenses decreased by 16% to $25.1 million for
the six months ended December 31, 1999, compared to $30 million for the six
months ended December 31, 1998. The decrease in expenses was primarily due to a
$2.8 million decrease in payments to


                                       11
<PAGE>


outside researchers for preclinical and clinical trials and other product
development work, a $1.6 million decrease in staffing costs for employees
engaged in research and development activities, as well as other decreases
related to the Company's research and development activities.

         General and administrative expenses increased by approximately 4% to
$4.3 million for the six months ended December 31, 1999, compared to $4.2
million for the six months ended December 31, 1998. The increase in general and
administrative expenses was primarily due to increased professional fees
resulting from partnering activities.

         Investment income was $522,000 for the six months ended December 31,
1999, compared to $1.2 million for the six months ended December 31, 1998. The
decrease was primarily a result of lower average cash and short-term investment
balances.

         Interest expense was $693,000 for the six months ended December 31,
1999, compared to $438,000 for the six months ended December 31, 1998. The
increase was primarily a result of higher average long-term debt balances.

         THREE MONTHS ENDED DECEMBER 31, 1999 AS COMPARED WITH THREE MONTHS
ENDED DECEMBER 31, 1998

         The Company's license and research revenue increased by $13.2 million
to $14.2 million for the three months ended December 31, 1999, compared to $1
million for the three months ended December 31, 1998. The increase is primarily
a result of the proceeds from the sale of technology to Inhale. The Company
expects research revenue for fiscal 2000 to increase when compared to fiscal
1999, due to the revenue from the Inhale transaction.

         Research and development expenses decreased by approximately 11% to
$14.7 million for the three months ended December 31, 1999, compared to $16.4
million for the three months ended December 31, 1998. The decrease in expenses
was primarily due to a $1.2 million decrease in payments to outside researchers
for preclinical and clinical trials and other product development work, a
$380,000 decrease in supplies and chemical costs, as well as other decreases
related to the Company's research and development activities.

         General and administrative expenses were $2.6 million for the three
months ended December 31, 1999, compared to $2 million for the three months
ended December 31, 1998. The increase in general and administrative expenses was
primarily due to increased salaries and wages and increased professional fees
resulting from partnering activities.

         Investment income was $312,000 for the three months ended December 31,
1999, compared to $532,000 for the three months ended December 31, 1998. The
decrease was primarily a result of lower average cash and short-term investment
balances.

         Interest expense was $320,000 for the three months ended December 31,
1999, compared to $245,000 for the three months ended December 31, 1998. The
increase was primarily a result of higher average long-term debt balances.


                                       12
<PAGE>


         Alliance expects to continue to incur substantial expenses associated
with its research and development programs. Operating losses may fluctuate from
quarter to quarter as a result of differences in the timing of revenues earned
and expenses incurred and such fluctuations may be substantial. The Company's
historical results are not necessarily indicative of future results.

PART II  OTHER INFORMATION:

ITEM 1.  LEGAL PROCEEDINGS

         In the quarterly report on Form 10-Q for the period ended September 30,
1999, the Company announced that HMRI dismissed arbitration proceedings filed
against the Company in September 1998 in connection with its termination of the
license agreement with HMRI and agreed to sell certain raw materials to
Alliance.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

         On November 4, 1999, the Company issued 1,134,738 shares of common
stock to Inhale in exchange for the right, valued at $5 million, to use
certain technology sold by the Company to Inhale. The stock was issued in a
transaction exempt from registration with the Securities and Exchange
Commission ("SEC") and under Section 4(2) of the Securities Act of 1933, as
amended (the "Act").

         On November 15, 1999, the Company issued to Burrill & Company a warrant
for 250,000 shares exercisable at $4.375 per share at any time before November
15, 2004. The warrant was issued in connection with the agreement of Burrill &
Company to provide consulting services to the Company. The transaction was
exempt from registration with the SEC under Section 4(2) of the Act.


                                       13
<PAGE>


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         An annual meeting of shareholders was held on December 10, 1999. The
following directors were re-elected for the following year and until the
election and qualification of their respective successors:

<TABLE>
<CAPTION>

                                                                                                         Broker
                    Director                     For               Against           Withheld           Non-votes
                    --------                     ---               -------           --------           ---------
        <S>                                     <C>                <C>               <C>                 <C>
        Pedro Cuatrecasas, M.D.                 32,687,988           0                5,414,703             0

        Carroll O. Johnson                      32,684,135           0                5,418,556             0

        Stephen M. McGrath                      32,687,688           0                5,415,003             0

        Donald E. O'Neill                       32,681,568           0                5,421,123             0

        Helen M. Ranney, M.D.                   32,681,288           0                5,421,403             0

        Jean G. Riess, Ph.D.                    32,684,383           0                5,418,308             0

        Duane J. Roth                           32,686,405           0                5,416,286             0

        Theodore D. Roth                        32,680,405           0                5,422,286             0

        Thomas F. Zuck, M.D.                    32,686,642           0                5,416,049             0

</TABLE>

         The shareholders of the Company voted to amend the 1991 Stock Option
Plan of the Company to increase the number of shares available for issuance
thereunder in accordance with the following vote:

<TABLE>

<S>                           <C>                         <C>                         <C>
       25,615,052    For        10,578,028   Against         697,801    Withheld        1,211,810   Broker Non-Votes
     ----------------         ---------------             --------------              --------------

</TABLE>

         The shareholders of the Company voted to ratify the appointment of
Ernst & Young LLP as independent auditors of the Company for its fiscal year
ending June 30, 2000 in accordance with the following vote:

<TABLE>

<S>                           <C>                         <C>                         <C>
       37,869,030    For         155,783     Against         77,878     Withheld            0       Broker Non-Votes
     ----------------         ---------------             --------------              --------------

</TABLE>



                                       14
<PAGE>


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

         10. Supply Agreement dated as of July 9, 1999 between the Company and
             Fluoromed L.P.

(b)      Reports on Form 8-K

         The Company filed a current report on Form 8-K dated November 4, 1999
         stating that it had completed the transfer to Inhale Therapeutic
         Systems, Inc. of Alliance's PulmoSpheres particle and
         particle-processing technology and other related assets for use in
         respiratory drug delivery.




                                       15
<PAGE>


SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                         ALLIANCE PHARMACEUTICAL CORP.
                                                 (Registrant)

                                                \s\ TIM T. HART
                                         -----------------------------
                                                  Tim T. Hart
                                            Chief Financial Officer
                                                 and Treasurer
Date:  February 11, 2000




                                       16
<PAGE>


                          Alliance Pharmaceutical Corp.

                                    Form 10-Q

                                  EXHIBIT INDEX







         The following exhibits are being filed herewith:



<TABLE>
<CAPTION>

   Number                                                 Document
   ------        -----------------------------------------------------------------
   <S>           <C>
     10.         Supply Agreement dated as of July 9, 1999 between the Company and
                 Fluoromed L.P. *

</TABLE>


               *  A request for confidential treatment of certain portions of
                  this exhibit has been filed with the Securities and Exchange
                  Commission.






                                       17